The Cost of Living Adjustment (COLA) is a vital mechanism that helps veterans and retirees maintain their financial stability. In 2023, the VA implemented the largest COLA in its history—an 8.7% increase.
This unprecedented adjustment significantly boosted VA disability compensation and Social Security benefits. It offered critical support during a period of high inflation.
In this blog, we’ll explore the details of the 8.7% increase. We’ll also discuss the factors behind this historic adjustment and compare it to previous and later years.
What Is COLA and Why Does It Matter?
COLA, or Cost of Living Adjustment, is an annual increase applied to benefits like VA disability compensation, Social Security, and military retirement pay.
Its primary purpose is to ensure that these benefits keep pace with inflation. Thus, it allows recipients to maintain their purchasing power despite rising prices.
COLA adjustments are determined by changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
It’s a metric that tracks the cost of goods and services such as food, housing, and healthcare. When inflation rises, the CPI-W increases, prompting a higher COLA adjustment.
For veterans and their families, COLA adjustments are essential. They help offset the financial impact of inflation, ensuring that benefits cover essential needs.
Without COLA, recipients would experience a decline in real income as the cost of living rises.
VA’s Largest COLA Ever: The 8.7% Adjustment
In 2023, VA beneficiaries saw an 8.7% increase in their monthly disability compensation. It was the largest COLA adjustment in the program’s history.
This significant boost reflected the sharp rise in inflation during 2022, which drove up the cost of essentials like housing, groceries, and medical care.
Impact on Monthly Payments
The 8.7% adjustment translated to substantial increases in VA disability payments. For example-
- A veteran with a 50% disability rating received approximately $117 more per month, raising their total payment to $1,041.
- Veterans with a 100% disability rating saw their monthly compensation increase by around $289, reaching $3,621.
These adjustments provided critical financial relief to millions of veterans and their families, helping them manage rising expenses.
Comparison to Previous Years
The 2023 COLA far exceeded the average adjustments of the past decade, which typically ranged between 1% and 3%.
For instance, the COLA for 2022 was 5.9%, itself considered a significant increase at the time. The 8.7% hike underscored the economic challenges posed by record-high inflation, making it an essential lifeline for recipients.
The adjustment also demonstrated the VA’s commitment to ensuring that benefits remain aligned with veterans’ real-world financial needs.
Why Was the Adjustment So High in 2023?
The 8.7% COLA adjustment in 2023 was a direct response to the record-high inflation rates experienced in 2022.
The economic environment at the time was marked by rising prices for essential goods and services. Therefore, the VA and other federal programs needed to significantly increase benefits to protect recipients’ purchasing power.
Inflation and Rising Costs
Inflation surged in 2022, reaching levels not seen in decades. The CPI-W, the metric used to calculate COLA, reflected sharp increases in the cost of essentials like-
- Food: Grocery prices rose by over 10%, putting strain on household budgets.
- Housing: Rental costs and home prices increased significantly, making shelter a more expensive necessity.
- Medical Care: Healthcare expenses, particularly for older adults and veterans, grew, further impacting overall living costs.
The CPI-W recorded an average annual increase of 8.7%, which directly informed the COLA adjustment.
Economic Pressures on Veterans and Retirees
Veterans and retirees were among the most vulnerable to these rising costs. After all, their fixed incomes rely on benefits like VA disability compensation and Social Security.
Without a substantial COLA adjustment, many recipients would have struggled to meet basic needs.
Role of the Bureau of Labor Statistics (BLS)
The BLS plays a critical role in determining COLA by analyzing CPI-W data. The sharp inflationary pressures in 2022 necessitated an unprecedented adjustment.
The 8.7% increase was not just a response to inflation—it was a safeguard for the well-being of millions of veterans and their families.
Cost of Living Adjustments in Other Years
The 8.7% COLA in 2023 was extraordinary compared to previous years, where adjustments were typically much smaller due to lower inflation rates.
Recent COLA Adjustments
- 2025: A 2.5% adjustment, marking a significantly lower inflation.
- 2024: A 3.2% adjustment, which was much lower than COLA from the previous year (2023).
- 2022: A 5.9% adjustment, considered significant at the time, responded to rising inflation in the aftermath of the COVID-19 pandemic.
- 2021: A modest 1.3% increase, reflecting relatively low inflation.
- 2010, 2011, and 2016: No COLA adjustments were made in these years, as inflation was minimal or non-existent.
Long-Term Perspective
Over the past decade, the average COLA adjustment has been around 2%. Thus, the 8.7% increase in 2023 is a historical outlier.
Conclusion
The 8.7% COLA adjustment in 2023 was a historic response to unprecedented inflation, providing much-needed financial relief for veterans and their families.
This increase highlighted the vital role COLA plays in safeguarding purchasing power during challenging economic times.
For veterans, this commitment ensures stability and security, even in volatile economic conditions. It also reflects the nation’s gratitude for their service.